This is bizarre. I can't get this type of guest to work with Virtual Machine Manager in either Fedora 17 or 18 TC7. It looks like it installs, but when it reboots the guest it just thrashes around throwing errors. I checked the Lubuntu ISO and it's fine. I can run it on VirtualBox in Fedora 17, so I'm wondering if there's something in the Lubuntu 12.10 kernel that's messing up somewhere in the qemu-kvm layer.
I'm going to try some other guests - openSUSE 12.2 and Linux Mint 13 for sure.